A corporation is the owner of (and pays the premiums on) a policy providing for payment of the benefit on the death of the survivor of Mr X (its sole shareholder) and his spouse or (in the alternative) on the death of the survivor of Mr X and a key employee who was not a shareholder. The policy has an adjusted cost basis, cash surrender value, and fair market value of nil, $40,000 and $500,000, respectively. Would s. 110.6(15)(a) apply given that more than one person’s life was insured under the corporate policy and one of the lives was of a non-shareholder? CRA responded:
[T]he fact that there is more than one person whose life is insured under an insurance policy, which is the property of a particular corporation, is not by itself something that prevents the application of paragraph 110.6(15)(a).
Furthermore, the fact that the insured persons are not all shareholders of the particular corporation is not usually a factor in determining whether paragraph 110.6(15)(a) applies to a shareholder of the corporation who is a person whose life is insured under an insurance policy which the corporation owns.